Analysis: Grim outlook seen for semis

SAN JOSE, Calif. -- Based on current guidance from many chip makers--especially the industry bellwethers--the fourth quarter of 2008 and beyond looks grim.

Nearly every sector in the semiconductor industry--such as analog, consumer, industrial, foundry, memory, wireless and others--is projected to see larger-than-expected declines in sales and demand for the fourth quarter and perhaps the first part of 2009.

Some sectors are doing better than others. Some are still above water and showing a profit, but most agree that memory is dragging down the entire ship. Memory, which has been engulfed in a downturn for some time, is not expected to recover until 2010 or so.

It's not all bad news. One of the few bright spots is microprocessors, which could see flattish growth in the fourth period. But in the first quarter of 2009, processor demand could tail off due to a seasonal lull in PCs. The handset market has already slowed, while automotive, consumer and industrial have grinded to a halt.

In fact, there are growing whispers that the current cycle is somewhat reminiscent of the horrific downturn in 2001. The current IC business was already slowing prior to the economic crisis and credit crunch. But now, the key economic fundamentals are quickly crumbling.

Others disagree, claiming the sky isn't falling on the industry. On the other hand, Richard Tsai, president and chief executive of Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), characterized the current climate as a ''severe business environment.''

Silicon foundry giant TSMC (Hsinchu, Taiwan), one of the bellwethers in the IC industry, sees a severe drop in demand in the fourth quarter and projects a downturn in the overall IC industry for 2009.

Amid an IC slowdown and the economic crisis, the worldwide IC industry is projected to fall by a whopping 10 percent in the fourth quarter of 2008 alone, Tsai said during a conference call this week.

As a result, the overall IC industry is projected to have ''flattish growth'' in 2008 over 2007, he said. Most forecasters project single-digital growth in 2008. In 2007, the IC industry grew by some 10 percent.

Going forward, TSMC sees a downturn on the horizon. ''2009 will be a challenging year,'' Tsai said. He projects that the overall IC industry could decline from the ''mid-to-high single digits" in 2009.

Clearly, the current economic crisis in the United States and elsewhere could have a ''severe effect'' on the worldwide semiconductor industry, warned Katsuhiro Tsukamoto, president and chief operating officer at Renesas Technology Corp. (Tokyo), the world's largest microcontroller maker. "Consumer demand will drop," Tsukamoto said in a recent interview. Worldwide capital spending ''will slow down.''